may 30, 2014. meeting & outreach efforts february 27th – proposed compensation plan...
TRANSCRIPT
FY 2014/15 Ord Community
Compensation Plan
May 30, 2014
2
Meeting & Outreach efforts
February 27th – Proposed Compensation Plan• Distributed to Joint Admin/WWOC
March 5th – Joint Admin/WWOC Meeting• First discussion on proposed Compensation Plan
April 2nd – Joint Admin/WWOC Meeting• Reviewed proposed Compensation Plan
• Provided responses to questions received
April 30th – WWOC Meeting• Submitted and reviewed revision to Compensation Plan
May 7th - Joint Admin/WWOC Meeting• Presentation on 2013 Rate and Fee Study
• Presentation of FY 2014/15 Ord Community Compensation Plan
May 21st – Joint Admin/WWOC Meeting• Presentation of FY 2014/15 Ord Community Compensation Plan
• No action was taken
Proposed FY2014/15 Compensation Plan:
Funds required on-going O&M Funds existing debt and coverage requirements Provides minimal PAYGO funding
• Remaining CIP to be Capital Reserve funded
Requires $1M loan from Marina Water to cover O&M Expenditures supported by proposed 10% water revenue
and 4% sewer revenue increase• Typical monthly water increase of $12.37 based on 13 hcf
• Monthly sewer increase of $1.23
3
MCWD Ord System: Background & Statistics
3,092 accounts 208 miles of water / 112 miles of sewer 5 wells and 15 lift stations Total Ord asset value - $141M Average life of asset – 47 years Annual depreciation - $3M ($141M ÷ 47 yrs)
• Standard to benchmark capital reinvestment
• $970 – Annual cost per account
4
Regional Project deferred funding of capital reinvestment
Capital Reinvestmen
t
Regional Project
5
On Going Unfunded Needs are not unique to MCWD
“Taking care of Streets costs less than deferring & rebuilding”
City of Marina 2014 Financial Compass
“This [funding maintenance] can save communities millions of dollars”
City of Marina 2014 Financial Compass
6
There is a significant impact of deferred maintenance and capital replacement
Less preventive maintenance on your systems shortens asset life cycle by as much as one-third
• Would increase annual depreciation to $4.5M
• Roughly $1,450/yr per account (an increase of $500)
Less preventive maintenance results in more emergency repairs, which are more costly than planned repairs
7
“Deferred maintenance is causing streets to deteriorate rapidly & cost much more”
City of Marina 2014 Financial Compass
Standard practice, in most industries, is to annually adjust rates to maintain cost recovery and curtail large one-time increases
8
Proposed rate increases consistent with historical CPI-WSM* escalation
FY 2011/12 FY 2012/13 FY 2013/14 FY 2014/15 $-
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00 63.72
Typical Water Monthly Bill (13 hcf)
Previously recommended If escalated by CPI - WSMExisting Rate Proposed
* Consumer Price Index - Water and Sewerage Maintenance (5yr rolling average)
9
In-lieu of rate increase, reserves were utilized in order to maintain the necessary level of service
2009/2010 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015$0
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
$9,000,000
$10,000,000
Combined Ord Operating Reserves
Total Operating Reserves Operating Reserves Target
FY14/15 Budget, Ord Water must borrow $1M from Marina
Water
10
Dependence on reserves, without increases, causes rate spikes and removes flexibility
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
Illustrative Potential Rate Impact
Revenues Use of ReservesExpenditures Ending Fund Balance
5% Escalation
Without reserves, large one-time increase (28% ) needed
11
Financial Plan & Rate Study
May 30, 2014
Rate & Financial Study Objectives focused on:
5-10 year outlook to smooth proposed increases as well as to provide greater operational and financial stability
Identify revenue requirements to develop water and sewer rates for providing sufficient and predictable revenues to fund expenditures and reserves
Prepare a cost of service analysis to evaluate the appropriate rates and charges that are consistent with legal requirements
Design rates that promotes conservation to meet the State’s 20 x 2020 requirements (SB 7x-7)
13
Cost of Service process includes three main analysis components
• Compares the revenues to operating and capital costs to determine adequacy of the existing rates to recover costs
Revenue Requirement Analysis
• Allocates revenue requirements to various customer classes in a reasonable and equitable manner
Cost of Service Analysis
• Considers the structure of the rate design to collect the revenue requirements from each class of service
Rate-Design Analysis
14
Rate setting process is complex due to diverse and competing objectives
Rate Design
• Cost of Service
• Prop. 218• Conservation
Objectives• Affordability
Financial Stability
• Revenue Sufficiency
• Predictable & Stable Revenue
• Use of/ Ideal Reserve Levels
Capital Funding
• Short-term Needs
• Long-term Needs
• Proactive vs. Reactive
15
Forecasted five-year capital needs are significant driver of proposed revenue program
Ord Water - Capital Need (CIP) Ord Sewer - Capital Need (CIP)$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
Five-Year Proposed Capital Improvement Program (Total)
16
Debt funding potential is sufficient to fund identified Capital Program Ord Water - 5yr Capital Outlook
0
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
Cash Funding Potential
Debt Funding Potential
Capital Need
17
Debt funding only partially funds identified Capital ProgramOrd Sewer - 5yr Capital Outlook
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
18,000,000 Capital Need
Cash Funding Potential
Debt Funding Potential
18
Approval of rate increases are necessary to comply with existing bond covenants
* Based on 2013 Rate Study cash flow projections for Ord Water Cost Center assuming no revenue increases. Targets exceed legal DCSR of 1.25x and 1.10x for the 2006 Bond and 2010 Bond, respectively, to allow for continued debt funding.
-2.00
-1.50
-1.00
-0.50
0.00
0.50
1.00
1.50
FY 2013/14 FY 2014/15 FY 2015/16 FY 2016/17 FY 2017/18 FY 2018/19
OrdWater Coverage Factor
Senior Debt Coverage FactorSenior Minimum CoverageJunior Debt Coverage FactorJunior Minimum Coverage
19
Financial outcome without recommended increases is not an option
$(6)
$(4)
$(2)
$-
$2
$4
$6
$8
$10
$12
FY 2013/14 FY 2014/15 FY 2015/16 FY 2016/17 FY 2017/18 FY 2018/19
Million
s
Forecasted Cash Flows Without Increases
Total Expenditures Proposed Rate Revenue Total Reserves
20
Facilities Agreement
7.1.2 - MCWD Will Recover Costs. MCWD will recover all of its direct and indirect, short term and long term costs of furnishing the facilities to the service area. MCWD shall not be required to take any action in connection with furnishing the facilities to the service area unless and until a source of funds is secured from the service area to pay in full in a reasonable manner consistent with normal accounting practices all of MCWD’s direct and indirect, short term and long term costs of the action to be taken by MCWD, including costs of administration, operation, maintenance and capital improvements to provide adequate system capacity to meet existing and anticipated service demands.
21
Gradual increases provide financial stability, ability to issue new debt, and fund adequate capital reinvestment
$-
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000 Ord Water Forecasted Cash Flows With Increases
Total Expenditures Proposed Rate Revenue Total Reserves
22
Gradual increases enable rebuilding of reserves over the forecasted period
FY 2013/14 FY 2014/15 FY 2015/16 FY 2016/17 FY 2017/18 FY 2018/19$0
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000Ord Water Forecasted Fund Balances
Capital Operating Operating Target
23
Resulting Proposed Ord Water and Sewer RatesDescription Existing
FY 2013/2014
FY 2014/2015
FY 2015/2016
FY 2016/2017
FY 2017/2018
Consumption Rates (per hcf)
0 to 8 hcf $2.33 $2.22 $2.60 $2.97 $3.40 $3.68
9 to 16 hcf 3.27 3.40 3.98 4.56 5.22 5.65
16+ hcf 4.22 4.59 5.37 6.14 7.03 7.62
Monthly Service Charges5/8" - 3/4" $17.11 $ 28.96 $ 31.48 $ 34.37 $ 37.55 $ 38.79
1" 42.76 45.18 49.11 53.62 58.57 60.51 1 1/2" 85.49 72.21 78.49 85.71 93.62 96.71
2" 136.78 104.64 113.74 124.20 135.66 140.14 3" 256.47 180.37 196.05 214.09 233.85 241.57 4" 427.45 288.45 313.52 342.36 373.96 386.31 6" 854.89 558.75 607.31 663.18 724.39 748.31 8" 1709.79 1,099.66 1,195.24 1,305.19 1,425.66 1,472.72
Flat Rate $84.34 $ 98.36 $112.65 $127.29 $143.94 $153.99
Sewer (EDU) $ 25.26 $ 26.49 $ 27.55 $ 28.65 $ 29.80 $ 32.18 24
Typical Customer Impact Based on 13 Units (hcf) of Water
Ord Water: $12.37 increase Ord Sewer: $1.23 increase
Existing Proposed $-
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
$80.18
$93.78
Service Charge Consumption ChargeSewer (Fixed) Total Charge
25
Water Rate Comparison (Based on 13 hcf = hundred cubic feet)
Cal-AM Cal-Water
MCWD (Ma-rina) 2014
MCWD (Ma-rina) 2015
City of Seaside
Cal-AM (DRO)
MCWD (Ord) 2014
MCWD (Ord) 2015
$0
$20
$40
$60
$80
$100
$120
$140
$160$145.06
$54.06 $53.78 $55.46
$125.47
$143.81
$63.72$72.18
26
Wastewater Rate Comparison
Pacific Grove
Monterey
Salinas Seaside Del Rey Oaks
MCWD (Ma-rina) 2014
MCWD (Ma-rina) 2015
MCWD (Ord) 2014
MCWD (Ord) 2015
$0
$5
$10
$15
$20
$25
$30
$24.74
$10.25
$4.85
$12.40 $12.40
$10.10$11.11
$26.49$27.55
27
Capacity Fees
28
Capacity Charge Structure
PV of Future CIP
Capacity Charge
Existing + Future Customers
=
+RCNLD* for
Existing System**
* Replacement Cost New Less Depreciation (RCNLD)** Value does not include any Conveyed Assets
29
Capacity Charge Cost Basis
Current Asset Value• Escalated Asset Replacement Values
• Does not include conveyed assets
• Plus: Applicable Reserves & Other Assets
• Less: Depreciation
• Less: Debt Principal
Future CIP• Present Value of CIP
• Includes Total Capital Improvements
Meter Equivalent Projections• Population Growth (Based on UWMP Projections)
• Total Meter Equivalents (in 2030)
30
System Capacity Charges
DescriptionExisting
($25 month surcharge)
Proposed(No surcharge)
System Capacity Charges (per EDU)
Ord Water $5,750 $8,010
Ord Sewer $2,150 $3,322
* Charges reflect updated asset valuation and financial records
31
Closing Remarks / Questions
32
FORA’s approval of the Compensation Plan
Complies with Facilities Agreement Enables future debt (minimizes upfront capital costs) Funds Updated Water & Sewer System Master Plans Funds development of Asset Management program Funds / Incentivizes conservation programs Funds less expensive, preventive maintenance program
Failure to endorse will continue to jeopardize day-to-day operations and will restrict ability to plan and construct new water sources
33
Extra Slides
34
Conservation does not impact overall sizing of system needs
Normal 10% Conservation
Fire Flow (FF) 1,500 GPM Residential
Max Day Flow (MD) 1,152 GPM 1,037 GPM
FF + MD 2,652 GPM 2,537 GPM
Pipe Size 8-inch 12-inch 8-inch 12-inch
Velocity 16.9 fps 7.5 fps 16.2 fps 7.2 fps
Recommended Max Day Plus Fire Flow velocity is 15 fps
• Max Day Flow adjusted from City of Seaside 2015 water demand (768x1.5), Table 4.4, MCWD 2006 Ord Water Master Plan
• Flow expressed in gallons per minute (GPM)• Velocity express in feet per second (fps)
35
Historical Engineering News Record (ENR) and Consumer Price Index (CPI) escalators exceed previously adopted rates
1/1/2009 1/1/2010 1/1/2011 1/1/2012 1/1/20130.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
CPI - WWM ENR-CCI
36
ENR vs CPI
The Consumer Price Indexes (CPI) tracks monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services
The basket includes a combination of food, beverages, housing, apparel, transportation, medical care, etc.
CPI has little to do with the cost of building and maintaining water or sewer infrastructure
ENR (Engineering News-Record) and tracks the change in price for a specific combination of construction labor, steel, concrete, cement and lumber
37
ENR vs CPI
38
System Capacity Charges
Description
Existing($25
Monthly Surcharge)
OriginalProposed
Revised Proposed*
System Capacity Charges (per EDU)
Ord Water $5,750 $15,669 $8,010
Ord Sewer $2,150 $7,636 $3,322 * Charges reflect updated asset valuation and financial records
39